Monetary Policy & Inflation | US
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Summary
- Governor Miran’s view on the 2% inflation target and the Fed’s operational framework could turn out more market moving than his call for six 2025 cuts.
Market Implications
- I am still expecting two more 2025 cuts.
Three Key topics
In his first interview as Board Governor on Friday, Miran announced he would present a detailed economic argument for his call for six 2025 cuts on Monday at the NY Economic Club.
Here are the three key topics to focus on:
1. Does Miran have the ‘economic goods’ to back his call for six 2025 cuts? Miran may not win the day this week, but a solid presentation would add to his FOMC credibility. His argument is that the FFR is too far from neutral given risks to employment. Miran’s long-term dot is likely the lowest, i.e., 2.6% versus the FOMC median of 3%, so the gist of the Miran/FOMC disagreement is on inflation risks. In his shoes, I would use Charts 1 and 2 showing:
A. Goods price inflation acceleration started well before the US tariffs, which have not noticeably worsened the trend.
B. Market-based core PCE (that excludes input prices, e.g., portfolio fees) has remained stable.
C. Both market rent indices and rising rental vacancies show housing disinflation is likely to continue.
2. His commitment to the 2% inflation target. When asked yesterday morning if he supported it, Miran said ‘any conversation about that has to take place over a long period of time and have lots of views. Like I said, I was just confirmed a few days ago so give me some time to get up to speed before actually coming to a very strong view on that.’ Hardly a strong endorsement. Miran seems to be saying aloud what Chair Powell is doing: inflation 3/4ppt above target is not worth engineering a growth slowdown to take it smack on target. So, policy-wise he and Powell are not as far apart as consensus assumes.
3. His view on the Fed’s operating framework. Miran yesterday morning signaled openness to moving back to a scarce reserves framework and a much smaller Fed balance sheet. When asked about the balance sheet size, long criticized by Congressional Republicans, Miran replied that it reflected the Fed’s operating framework and that he preferred to ‘first think about the operating framework and the right balance sheet size will drop out of that.’ He clearly dispelled any notion that he supports a ‘third mandate’ targeting long-term yields or subsidising the mortgage market through the Fed’s balance sheet.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of Macro Hive. This includes providing or reproducing this information, in whole or in part, as a prompt.)